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Wine farms are often seen as risky business. But could there be value beyond just the wine?

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Purchasing a wine farm may seem an indulgence or a trendy lifestyle decision for the rich and famous, but when assessing this investment option from a more holistic and objective perspective, it is clear that significant benefits are being realized by those who are successfully leveraging the opportunities that a wine farm can offer. This situation is especially relevant for family businesses that reap the rewards not just limited to commercial gain but also within the essential areas of brand-building and generational succession.

Is A Wine Farm A Good Financial Investment?

According to Viva Business, global experts in winery acquisition, the popularity of this investment has grown exponentially over the last twenty years. No longer just a passion purchase, buyers are increasingly considering financial gain in their decision-making. Financial advisors and wealth managers are also endorsing this investment, seeing wineries as a means to diversify a client’s portfolio and hedge against often erratic returns of stocks and other investments. Looking at the U.S. market as an example, it is clear that the wine industry has been in a very healthy space over the last couple of decades with annual consumption almost doubling to over 770 million gallons. The wine industry is dominated by families, with the majority of the 2000 wineries in California being family-owned, including globally recognized brands such as Gallo. California wineries alone provide a massive stimulus of approximately $45.4 billion to the California economy. Although past performance suggests that wine farms are a potentially lucrative investment for family businesses, buyers should be aware that a winery acquisition should be purchased correctly and for the right reasons. Expert advice should be secured, and due diligence is a must to avoid overpaying or buying in the wrong region.

Unlike investing in stocks or bonds, this type of investment should be viewed more in the context of land and property value, not only as an income producing asset. Also, consumption growth is not guaranteed. The State of the Wine Industry 2018 report, which details U.S. wine consumption trends, indicates "After more than 20 years of straight-line growth trends, total volume growth is leveling out." Author, Rob McMillan, claims that "Winery owners, who have seen grape prices escalate markedly over the past five years, are finding that cost increases are difficult to pass on to new consumers, who are signaling that they have a lower indulgence ceiling than have prior generations." Hence, the report predicts that "Successful wineries ten years from now will be those that have adapted to a different consumer with different values. " The bottom line is that caution needs to be exercised in purchasing a wine farm, but if the fundamentals are good and the assets are leveraged optimally, it can still be an excellent long-term investment.

Building A Family Brand For Future Vintages

According to a Wine Institute article on the California Wine Industry: "A unique feature about California's wine families is that the family name is often on the wine label. This usually means that the family will choose the path to quality in business or production decisions because its family name, and thus its reputation, is at stake." The report continues that, "Family members tend to be loyal and dedicated to the family enterprise, and the family presence in winery jobs provides continuity in passing institutional knowledge on to others at the winery." This results in members other working harder to keep the business in the family and pass it to the next generation.

The Wine Institute continues: "California's wine families become versed in all aspects of the wine business, learning grape-growing, winemaking, marketing and hospitality in the tasting room and events. Throughout California, wine lovers can meet the interesting personalities behind their favorite wines. This is a trend that is not unique to California and demonstrates how a winery can be leveraged to add substance and heritage to a family’s name and reputation."

Supporting A Multi-Generational Approach

As much as a wine farm can deliver attractive financial returns and enhance a family’s reputation, it is also an enjoyable and experiential lifestyle investment. Not only does the nature of the wine business lend itself to a family-managed approach, but it also significantly improves the chances of effective next-generation succession due to the attractiveness of becoming commercially active in an enjoyable product.

Tondi Bolkan, the winemaker from Francis Ford Coppola Winery, a family-owned wine farm would agree, "Our owner Francis Ford Coppola is more involved than ever with new visions and ideas. What’s more exciting is the involvement of the next generation of the family (Roman, Sofia, and granddaughter Gia) in the businesses. It will be exciting to watch The Family Coppola business in the upcoming years!"

Purchasing a quality wine farm can be a sensible option when looking at diversifying your portfolio and taking a long-term view on building family brand equity and encouraging multi-generational participation in the family business. However, it is an investment that requires active involvement and should be guided by expert advice.

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